Foreign Direct Investment, Economic Growth and Financial Sector Development in Small Open Developing Economies

Oluwatosin Adeniyi (), Festus O. Egwaikhide, Mutiu Oyinlola () and Olusegun Omisakin ()
Additional contact information
Festus O. Egwaikhide: Department of Economics, University of Ibadan, Nigeria

Economic Analysis and Policy, 2012, vol. 42, issue 1, 105-127

Abstract: The present paper examines the causal linkage between foreign direct investment(FDI) and economic growth - in Cote’ d’Ivoire, Gambia, Ghana, Nigeria and Sierra Leone – with financial development accounted for over the period 1970-2005 within a trivariate framework which applies Granger causality tests in a vector error correction(VEC) setting. Three alternative measures of financial sector development - total liquid liabilities, total banking sector credit and credit to the private sector – were employed to capture different ramifications of financial intermediation. Our results support the view that the extent of financial sophistication matters for the benefits of foreign direct investment to register on economic growth in Ghana, Gambia and Sierra Leone depending on the financial indicator used. Nigeria, on the other hand, displays no evidence of any short- or long-run causal flow from FDI to growth with financial deepening accompanying. In sum, therefore, what should be of utmost urgency is concerted efforts in most of these countries, which have typically been in the throes of economic reforms, to upgrade their financial structure to better position them to reap the desirable growth promoting effects of FDI flows.

Keywords: Financial development; Foreign direct investment; Vector error correction; Economic growth; Economic reforms (search for similar items in EconPapers)
JEL-codes: F23 G18 G28 O16 O40 (search for similar items in EconPapers)
Date: 2012
References: Add references at CitEc
Citations: View citations in EconPapers (36)

Downloads: (external link)
http://www.sciencedirect.com/science/article/pii/S0313592612500081
Full text for ScienceDirect subscribers only

Related works:
This item may be available elsewhere in EconPapers: Search for items with the same title.

Export reference: BibTeX RIS (EndNote, ProCite, RefMan) HTML/Text

Persistent link: https://EconPapers.repec.org/RePEc:eee:ecanpo:v:42:y:2012:i:1:p:105-127

Access Statistics for this article

Economic Analysis and Policy is currently edited by Clevo Wilson

More articles in Economic Analysis and Policy from Elsevier
Bibliographic data for series maintained by Catherine Liu ().